VINACHEM

Vietnam’s growth slowed in thefirst quarter after the central bank raised key interest rateto among the highest levels in Southeast Asia to tame inflation.

Gross domestic product climbed 5.43 percent in the threemonths through March from a year earlier, slowing from a 7.34percent pace previously announced for the fourth quarter,according to a preliminary estimate released by the GeneralStatistics Office in Hanoi today.

Prime Minister Nguyen Tan Dung has lowered the target forcredit growth and ordered a tighter monetary policy as hestruggles to prevent inflation climbing from a 25-month high.Price gains, a widening trade deficit, currency weakness and thenear-bankruptcy of the nation’s largest shipbuilder havecontributed to a slide in the stock market this year.

“We are hoping to see the government maintain its stanceon inflation -- at the cost of growth -- at least until it isclearly under control,” Marc Djandji, head of research at VietCapital Securities in Ho Chi Minh City, said before the release.

The benchmark VN Index on the Ho Chi Minh City StockExchange has declined about 5 percent this year, compared with a3.6 percent fall in the MSCI Asia Pacific Index.

Consumer prices increased 13.89 percent in March from ayear earlier, stoked by costlier fuel and electricity and higherimport costs caused by devaluations of the dong.

The State Bank of Vietnam raised borrowing costs on March 8,increasing its refinancing and discount rates to 12 percent each.That matched the level of the repurchase rate, which has beenraised six times from 7 percent in early November.

Rising Rates

The central bank devalued the dong for the fourth time in15 months on Feb. 11 as it strives to narrow the nation’s tradedeficit, which widened to $1.15 billion this month from arevised $1.11 billion in February. That contrasts with the risein most Asian currencies against the dollar in the past year.

Officials have urged less use of gold and dollars in a bidto stabilize the currency as they try to steady the economyafter Fitch Ratings, Moody’s Investors Service and Standard &Poor’s cut Vietnam’s credit rating in 2010.

‘Addressing Instability’

The government has “recognized that their attention andfocus should be on addressing instability even if this comes atthe expense of slower growth,” the World Bank said in a reportlast week. Such policies, if successful, will help Vietnam“regain its pre-crisis growth potential in the medium term,”it said, predicting 6.3 percent expansion in 2011.

Dung said last month he aims to curb credit growth to lessthan 20 percent this year from an earlier target of 23 percent.He also intends to narrow the budget deficit to less than 5percent of GDP from a goal of about 6 percent in 2010, and capthe jump in money supply at 15 percent to 16 percent this year.

Industry and construction, which accounted for 43 percentof the economy in the first quarter, grew 5.47 percent duringthe period, according to today’s report. Services, which made up42 percent of GDP, expanded 6.28 percent. Agriculture, forestryand fisheries, which accounted for the remaining 15 percent ofthe economy, grew 2.05 percent.

While accelerating inflation and the impact of Japan’sworst earthquake threaten slower growth across Asia, somebusinesses are judging Vietnam’s potential outweighs challenges.

Export-Led Growth

Companies from Nokia Oyj(NOK1V), the world’s biggest maker ofmobile phones, to Wintek Corp.(2384), a Taiwanese maker of panels forApple Inc.’s iPhones, are shifting production to the nation tobenefit from cheaper labor compared with China.

Taichung, Taiwan-based Wintek said last week it intends toinvest as much as $150 million in a new plant in Bac Giangprovince in the north. Espoo, Finland-based Nokia plans to opena plant near Hanoi to make low-end phones.

Overseas shipments climbed 25.5 percent last year to $71.63billion, equivalent to about 75 percent of an economy thatexpanded 6.8 percent last year, the highest pace since 2007.

Dung is on course to serve another five-term after beingreelected to the Communist Party's top decision-making body inJanuary. He earlier faced criticism over state-owned VietnamShipbuilding Industry Group, or Vinashin, which the governmentsaid in August risked bankruptcy.

Dung and others acknowledge “shortcomings” in managingthe company, Deputy Prime Minister Nguyen Sinh Hung said lastweek.

Bank lending rates are currently about 20 percent,according to Ho Chi Minh City-based Dragon Capital.

That’s “just too high,” said Nguyen Thi Mai Thanh,general director of Refrigeration Electrical Engineering Corp.(REE),also based in Ho Chi Minh City and one of the first enterprisesto list on Vietnam’s stock exchange when it opened in 2000.

“When we decide not to borrow from the banks, it means wehave to reduce our activities and control the ones we carry outmore carefully,” Thanh said.